Alphabet's strong quarter overshadowed by capex concerns

What happened: Alphabet reported Q2 results with 24% revenue growth, 82% cloud growth, and AI driving profits. However, shares dropped 7.4% after management raised capex guidance by $15 billion to $28 billion, turning free cash flow negative. This increase, primarily for AI and cloud investments, raised concerns about cash burn.

Market impact: The tech giant's stock sell-off affected other big tech companies, with the Nasdaq 100 index also declining. Investors reassessed Alphabet's valuation, with shares trading at 21.3 times forward earnings, and questioned the sustainability of growth given increased capital expenditure.

What to watch next: Alphabet's Q3 earnings report on October 25 will provide an update on growth and cash flow management. Additionally, investors will closely monitor the rollout of Alphabet's flagship AI model, as delays may further impact sentiment. Lastly, the tech sector's broader performance will influence Alphabet's stock price, with upcoming earnings from peers such as Apple and Microsoft.